Mutual Mortgage Insurance Fund

The Mutual Mortgage Insurance Fund is a federal fund that insures mortgages guaranteed by the Federal Housing Administration (FHA). It supports both FHA mortgages used to buy homes and home equity conversion mortgages (the most common type of reverse mortgage) used by seniors to extract equity from their homes.

Mortgagors (borrowers) of either loan type pay into the fund with a one-time up-front premium – which may be paid at closing or rolled into the loan – and annual mortgage insurance premiums of a certain percentage of the loan amount. The cost of mortgage insurance depends on the loan type and occasionally changes, depending on the mortgage market and the viability of the Mutual Mortgage Insurance Fund.

In the case of FHA loans, the Mutual Mortgage Insurance Fund pays the lender if the mortgagor defaults and the lender loses money after selling the house in foreclosure. Borrowers who have FHA mortgages are considered higher risk because of the low down-payment requirement and the less-stringent income and credit requirements associated with these loans.

In the case of reverse mortgages, the fund pays the lender if the borrower owes more on the reverse mortgage than the home is worth when the lender sells it. Reverse mortgages are higher risk because they are a type of nonrecourse loan, meaning the lender cannot ask the borrower to pay the difference.

The fund makes sure lenders don’t lose money on certain types of risky mortgages, which encourages them to offer loans they otherwise might not and to charge lower interest rates and fees than they otherwise might. Up-front and ongoing mortgage insurance premiums for both FHA loans and reverse mortgages must be low enough to not discourage borrowers but high enough to support the Mutual Mortgage Insurance Fund. The Mutual Mortgage Insurance Fund is authorized by Section 203(b) of the National Housing Act of 1934. Click here for the Congressional Budget Office's detailed description of its structure and funding.